History of The Euro - US Analysis

US Analysis

A survey of US economists and their views on the EMU and euro from 1989–2002 found that the euro had gone much better than many expected. Academic economists, overall, were more skeptical than Federal Reserve economists who adopted a more pragmatic approach. The skepticism appears to have resulted from the strong influence of the optimum currency area theory; other reasons include similar skepticism of monetary unification as an evolutionary process as opposed to a political project that ignored fundamental elements of economics and a distrust of pegged currency exchange rates (as opposed to floating exchange rates) as a basis and an alternative to a single European currency.

Fred Bergsten of the Peterson Institute for International Economics in Washington DC was one of a few American economists optimistic about the euro. His analysis focused on European political economy rather than technical considerations like the theory of optimum currency area seeing its implications as ambiguous enough to permit a basically political decision. In the same vein, Jeffry Frieden, Political Scientist at Harvard, points out that most US economists failed to systematically include political factors in their analysis. By focusing only on the pure economics of the matter, they led themselves to unrealistic predictions. Charles Goodhart of the London School of Economics echoes a similar sentiment.

Some believed that a strong central state, which a sound euro seemingly required, would impede European economic liberalisation. On the other hand, some credit the euro's success to the European Central Bank's (ECB) ability to follow a stability-oriented monetary policy without undue influence from national interests. This would not be possible without a certain amount of centralised power and decent incentives. George Selgin suggests that the ECB had an incentive to keep inflation low out of a desire to secure for the euro a prominent position in the international monetary market.